Town of Norwood MA v. Fed'l Energy Reg. Comm'n

Decision Date05 October 1999
Docket Number98-2199,Nos. 98-1847,98-1876,98-2072,98-2198,s. 98-1847
Citation202 F.3d 392
CourtU.S. Court of Appeals — First Circuit


[Copyrighted Material Omitted]

[Copyrighted Material Omitted] Charles F. Wheatley, Jr. with whom Wheatley & Ranquist, Kenneth M. Barna, Alan K. Posner and Rubin & Rudman were on consolidated brief for petitioner Town of Norwood, Massachusetts.

Richard Roos-Collins, Natural Heritage Institute, for petitioner Northeast Center for Social Issue Studies.

Larry D. Gasteiger with whom Douglas W. Smith, General Counsel, Jay L. Witkin, Solicitor, and John H. Conway, Deputy Solicitor, Federal Energy Regulatory Commission, were on consolidated brief for respondent.

Edward Berlin with whom Robert V. Zener, Swidler Berlin Shereff Friedman, Llp, William J. Madden, John A. Whittaker and Winston & Strawn were on brief for intervenor New England Power Company.

Zori G. Ferkin with whom Earle H. O'Donnell, Andrew B. Young, Donald W. Stever and Dewey Ballantine Llp were on brief for intervenor USGen New England, Inc.

Before Boudin, Stahl and Lipez, Circuit Judges.

Boudin, Circuit Judge.

In this case, the Town of Norwood, Massachusetts ("Norwood") and the Northeast Center for Social Issue Studies ("Northeast Center") seek review of a series of orders of the Federal Energy Regulatory Commission ("FERC") directed inter alia to New England Power Company ("New England Power"), which engages in interstate wholesale electric power distribution in New England. In a companion decision Town of Norwood v. New England Power Company, No. 99-1047, we decide today a separate appeal by Norwood from the dismissal of an antitrust and breach of contract suit that it brought in the district court against New England Power and others.


Our history of this case is drawn primarily from the administrative record. For many years New England Power served as one of the major wholesalers of electric power in New England. It operates a high voltage transmission network, and in the past has owned and operated a number of generating plants, including hydroelectric, fossil, and nuclear. New England Power is a subsidiary of New England Electric System, which also owns four "retail" distribution companies, including Massachusetts Electric Company ("Mass Electric") serving Massachusetts, and Narragansett Electric Company ("Narragansett") serving Rhode Island.

New England Power sells wholesale power that it generates or buys from others both to affiliates like Mass Electric and to non-affiliated wholesale customers like Norwood, which operates its own municipal electric system serving businesses and residents in the Town of Norwood, Massachusetts. In general, wholesale sales in interstate commerce are subject to regulation by FERC under the Federal Power Act, 16 U.S.C. §§ 791a-828c, see 16 U.S.C. § 824(a), while retail rates (e.g., those charged by Mass Electric to its business and residential customers) are subject to state regulation, e.g., Mass. Gen. Laws ch. 164, §§ 93-94E; see also Boston Edison Co. v. City of Boston, 459 N.E.2d 1231, 1233 (Mass. 1984).

Traditionally, at both the federal and state level, electricity sales have been regulated on the familiar public utility model: the rates have been set forth in filed tariffs, unreasonable or unduly discriminatory rates have been forbidden, and an administrative agency has been charged with overseeing rates and other related subjects (such as extension of lines, mergers, and the like). See generally Town of Concord v. Boston Edison Co., 915 F.2d 17, 20 (1990), cert. denied, 499 U.S. 931 (1991). In many cases, as with New England Power, the suppliers are vertically integrated and are engaged in electricity generation, intercity transmission, and local distribution. See id. at 19.

As with other, once fully regulated industries, legislators and regulators have over the last 25 years sought to introduce a greater measure of competition into the electric power industry. In the case of electric power, this has been achieved not by encouraging duplication of intercity transmission or local distribution networks--as is occurring in the telephone industry--but primarily by regulatory changes. These include imposing obligations on facilities' owners to carry power for other suppliers ("wheeling"), encouraging customers to choose among competing suppliers, and discouraging anticompetitive practices by a variety of means, including restructuring so as to reduce the incentives for anticompetitive behavior. See generally Energy Information Administration, U.S. Dep't of Energy, The Changing Structure of the Electric Power Industry: Selected Issues, 1998, DOE/EIA-0562(98) (1998). Both Massachusetts and Rhode Island have been seeking to foster retail competition in the supply of electricity.

To this end, in December 1996, New England Power filed with FERC proposed amendments to power sales agreements with Mass Electric and Narragansett. Prior to the filing, requirements contracts obligated New England Power to supply its affiliates with all of their needs for electric power; the wholesale rates were specified in tariff schedules and termination by either side required lengthy prior notice (e.g. seven years). The proposed amendments permitted the affiliates to terminate on short notice, but subject to paying as a termination charge a portion of the costs incurred by New England Power in preparing itself to meet their projected longer-term requirements.

FERC referred the new filings to an administrative law judge, New England Power Co., 78 F.E.R.C. ¶ 61,080 (1997), under whose auspices settlement discussions occurred. See New England Power Co., 80 F.E.R.C. ¶ 63,003 (1997). In May 1997, New England Power filed proposed settlement agreements, which again permitted early termination for its affiliates (subject to termination charges), and provided that after termination New England Power would provide Mass Electric and Narragansett (at their option) with new "wholesale standard offer rates" which are described below. The settlement also committed New England Power to file a plan with FERC, by October 1, 1997, to divest itself of most of its generation business. Both of these steps, more fully described below, were purportedly designed to foster competition.

On October 1, 1997, New England Power sought approval from FERC to sell practically all of its non-nuclear electrical generating plants to USGen New England, Inc. ("USGenNE"), a subsidiary of a major west coast public utility holding company ("PG&E"). The sale required FERC approval both for the sale of certain facilities and the transfer of hydroelectric licenses. 16 U.S.C. §§ 801, 824b. In connection with its proposed purchase of assets, USGenNE agreed to assume responsibility for providing wholesale standard offer service to Mass Electric and Narragansett, and New England Power proposed to implement a rate freeze that would prevent increases in rates for its remaining wholesale customers, including Norwood.

Since 1983, Norwood has purchased electricity at wholesale from New England Power and resold it to local businesses and residential customers. Its agreement with New England Power, as extended by Norwood, obligated Norwood to take its requirements from New England Power through October 31, 2008.1 Regarding the wholesale standard offer rates proposed for New England Power affiliates as an unfair advantage to retail "competitors," Norwood notified New England Power on March 4, 1998, that it was switching to a different wholesale supplier. Norwood has now become a wholesale customer of Northeast Utilities, another major supplier of wholesale electricity in New England.

New England Power countered on March 18, 1998, by filing a proposed tariff revision that would permit its remaining wholesale customers to terminate their long-term requirements contracts on 30 days' notice. But the tariff purported to subject such customers to payment of a contract termination charge to permit New England Power to recover the revenues that it would have collected had the customers continued to pay the fixed tariff rate through the contract term, less the expected costs avoided by not providing service. New England Power subsequently billed Norwood for a portion of this termination charge but Norwood apparently has declined to pay.

In the proceedings before FERC, Norwood objected to each of the three measures proposed by New England Power: (1) its proposed settlement with its affiliates to terminate their requirements contracts and to provide them the option of wholesale standard offer rate service; (2) its proposed divestiture of generating facilities to USGenNE and the associated freeze on the wholesale rates New England Power charged to its unaffiliated wholesale customers; and (3) its March 1998 tariff amendments allowing unaffiliated wholesale customers like Norwood to terminate their requirements contracts on short notice but only on payment of a contract termination charge.

In a set of orders in these three proceedings issued between November 1997 and June 1998, FERC rejected virtually all of Norwood's requests for relief.2 Among other things, FERC approved the settlement agreement; it approved the sale of non-nuclear generating facilities to USGenNE and the transfer of hydroelectric licenses to it; and it upheld New England Power's imposition of a contract termination charge on unaffiliated purchasers who sought to terminate their existing contracts prematurely. Norwood sought direct review in this court, 16 U.S.C. § 825l(b), and we have consolidated its appeals into the present case.

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